Archive for October 2012

BT’s commercial roll-out of next generation (NGA) broadband is capricious, political, and certainly not based exclusively on commercial considerations, according to correspondence seen by Br0kenTeleph0n3.

In the following examples some details are disguised because Br0kenTeleph0n3 believes that disclosing them could prejudice correspondents’ on-going business with BT.

One correspondent has been nagging BT to connect his Midlands community. His community is a relatively new estate, with more new houses going up. It already has over 300 lines, he says. He recently sought to benchmark it against others elsewhere in the country.

He discovered that in one town in the South East Openreach plans to upgrade a street cabinet. It is more than 2km from the local exchange, and serves about 160 homes. The new cabinet has room for only 96 lines. On 9 October 2012 he asked Openreach’s complains and escalations department for its commercial justification.

It responded on 16 October:

This back from our Commercial Modelling unit head :
I’m not sure what help I can provide, other than confirming that the two cabs mentioned are outside of our Commercial 2/3rds UK footprint:
TOWNNAME (EXCHANGE)
This exchange is part deployed,. There will potential be more coming in future phases. However Cab 53 is not in the footprint as has a low total homes passed and is not commercial.
HISTOWN (EXCHANGE)
This exchange is part deployed. There will potential be more coming in future phases. However Cab 82 is not in the footprint as has a low total homes passed and is not commercial.
In determining the most commercially viable cabs to deploy to we take into account the costs of deployment and the likely take-up. The likely take-up percentage figures are good for these cabs, but they are both quite small, so the costs of deployment are not being outweighed by sufficient revenue.

Not taking this as definitive, the correspondent’s further research revealed the following:

“Cab 53 is on the footprint, the planning permission was requested, attached, and the BT checker indicates a go-live by December 2012.”

The BT Wholesale checker confirmed, “Your cabinet is planned to have WBC FTTC by 31st December 2012. Our test also indicates that your line currently supports a fibre technology with an estimated WBC FTTC Broadband where consumers have received downstream line speed of 80 Mbps and upstream line speed of 20 Mbps.”

The Openreach letter reveals clearly that BT has a map of the exchanges and cabinets that are inside its commercial footprint. It should be possible for BT to publish this so that communities that lie outside it can make alternative arrangements for getting high speed broadband into their villages.

In practice BT does not publish it. Thus, when communities take the initiative, apply for and are awarded grants to do their own roll-out, BT can respond, effectively spiking their guns, as happened in Ewhurst.

In May 2009, Ruth Pickering, then BT Group’s director of superfast broadband told Walter Willcox, Ewhurst’s broadband champion, “The UK rollout will be demand led and we have stated that we will go to areas with proven demand. To influence the rollout to gain coverage in your areas you can contact your local authority and lobby your Communications Provider to ensure that they have captured the demand for your area which will enable them to consider you when they are making plans for their utilisation of SFBB.”

Willcox set to building demand with a will. On 1 March 2010 Bob Townend of Openreach’s high level complaints department wrote to Willcox saying, “I have to advise there are no plans for any investment in the network in the area centred around the village of Ewhurst. I can also advise that Cranleigh exchange (which serves Ewhurst) is not in the current or next phases of the NGA FTTC roll out schedule for Superfast Broadband.”

Willcox later wrote, “Our original project provided ample capacity for 500 services from each cabinet and a comprehensive new fibre spine running through Ewhurst including some trial fibre to homes and premises. We now have three cabinets with a capacity of only 100 services each without enough connectors or duct space to achieve their maximum of 256 services. We had raised our significant concern to our BT contacts but all to no avail.

“The fibre distribution point is near Sayers Croft with a part shared quad tube routed to each cabinet and insufficient duct space in some places to increase that capacity. It seems further major expense for road works and more cabinets will be the only solution, as already demonstrated twice in Chilworth.

“It is vitally important that all investment in infrastructure, and most especially all the taxpayers’ state aid, is properly planned to provide a full fibre service to every premise as a replacement for the worn-out twisted pair cables.”

Communications minister Ed Vaizey: right place, right time

BT’s planning department did get one thing right. In January 2010, BT announced that Didcot would be the only village in Oxfordshire to be fibred up. Didcot MP Ed Vaizey became the UK’s communications minister four months later.

BT appears to have slowed the pace of its next generation broadband roll-out for a number of reasons.

Most readers will be aware that DG Competition has still not given its approval for the release of more than £1bn under the BDUK procurement framework because of concerns over wholesale access to the resulting infrastructure. This is holding up about 30 NGA projects in both cities and rural areas.

But there are other reasons too.

Liv Garfield, CEO of BT’s infrastructure arm, Openreach, told the recent NextGen12 conference that its £2.5bn Infinity fibre to the cabinet project now “passes” more than 11 million homes. But take-up rates so far are thought to be under 10%.

The conference was full of talk that BT is now concentrating on preserving cash flow, so NGA roll-outs that use BT’s cash are unlikely until it gets more paying customers.

Another is that Openreach is missing its targets. On 31 August it revealed that its planning department was missing targets to confirm excess construction charges (Day 8 target) and lead times to customers (Day 14 target). (See graph.)

It said it was taking remedial action to bring the number of missed deadlines back to it target of 10% by November.

Another is that it has asked the firms that actually dig the trenches, throw the concrete, fit the cabinets, that it wants price discounts of between 20% and 30%.

This was confirmed by a delegate at the NextGen conference. A sub-contractor to Openreach’s primary contractors, he told Br0kenTeleph0n3 that NGA business had pretty much dried up following two years of breakneck activity. He was expecting his customers to pass on the discount request in the near future. “It’s just not there,” he said.

The contractors have reportedly responded by asking for a 270-day notice period for contract starts.

That means even if BT won NGA contracts today for say, Derbyshire, the earliest shovels could break ground is 8 July next year, says a source close to county council procurements.

Parish and council elections in 33 counties are due in May next year. Many councillors who have promised voters superfast broadband may have to enter the election unable to make good their promise if they stick with the BDUK procurement framework.

The department of culture, media & sport, which owns the BDUK process, told local authorities (LAs) on 19 June that the bidders (BT and Fujitsu) had warned that they could not roll-out NGA concurrently in every county. (This was before the Cabinet Office blacklisted Fujitsu.)

LAs heard that the bidders could handle no more than five bids “until progressed far enough to ensure process is running smoothly”, and then no more than three per month to start, with performance dictating actual numbers at any time.

In a breakfast meeting of the Centre for European Policy Studies this morning Kroes will say, “Privacy is a fundamental right; if your idea doesn’t work with that, it won’t work at all. Because people won’t use what they don’t trust. And they will stop using what they learn to distrust. If that happens, online businesses miss out on a huge opportunity of new and bigger markets.”

Kroes believes delegates at the Web standards setting body W3C are in danger of kowtowing to mainly US lobbyists who say their cookies will refuse to acknowledge default Do Not Track (DNT) messages from browsers.

The US-based Digital Advertising Alliance, which includes the Direct Marketing Association, said recently, “The DAA does not require companies to honour DNT signals fixed by the browser manufacturers and set by them in browsers.”

The DAA went on to complain about Microsoft setting DNT as the default in Internet Explorer v10. It said its members would not abide by such instructions, and such a default was not “an appropriate standard for providing consumer choice.”

Kroes is worried that consumers will start shopping off-line or find ways to hide their online movements rather than allow anonymous companies to track them through cyberspace. This could jeopardise the development of a single e-commerce market in Europe, one of the European Commission’s primary goals.

In a December 2011 presentation Cisco said global retail e-commerce would be worth $1.4tr by 2015. The B2B market is already at least 50% bigger than retail, according to US Census figures quoted by Oracle earlier this year. But much of this is done on private networks with strong authentication with contractual obligations that create a climate of trust between parties.

The DNT standard is meant to stop firms from installing third party tracking cookies without users’ explicit permission. At present firms can do this without telling users what data they collect or what they use it for, nor are users easily able to discover and delete what companies may find out or predict about them.

This information is especially valuable to firms like Google and Facebook. They collate this data, compile a profile of users’ interests and therefore possible real world situation, and sell those profiles to advertisers who develop products (semi-)customised for individuals who fit that profile.

The DAA claims this stops you from receiving unwanted marketing messages; critics say this would end up restricting all the information you would get to see and the product and service choices presented to you.

The new provisions in Europe’s e-Privacy directive, the so-called “cookie rules”, require informed consent before information is stored or accessed on a user’s device, their computer or smartphone. This includes cookies for advertising or other tracking purposes.

“All providers need to respect and implement these rules,” Kroes will insist.

BT is treating the UK’s rural areas as new build sites for the purposes of next generation broadband, Openreach CEO Liv

Garfield – green fields and greenfield sites

Garfield told delegates to the NextGen12 conference in London on Monday.

She said she had taken a look at “vast chunks of rural UK, and there is nothing there to assist” Openreach in rolling out fibre-based broadband access.

“There is just ground, and we’ll have to go through that ground, or we’ll have to use aerial poles, and that’s the way rural broadband will be connected. It will not be based on what’s already there,” she said. “It will be brand new provision.”

This is despite BT spending tens of millions of pounds 10 years ago to install ADSL broadband in rural areas. Critics, including former BT CTO Peter Cochrane, say BT’s current choice of fibre to the cabinet (FTTC) is a technological dead end that means BT is likely to ask taxpayers for more money in a few years as its implementation can’t deliver fibre to the home (FTTH).

Garfield went on to say that the present cost is not “the few hundred grand” it costs to upgrade a cabinet, but the millions it costs to upgrade an exchange to support fibre-based broadband.

BT has faced questions over its proposed costs of upgrading broadband in rural areas. Leaked documents prepared by former BDUK contractor Mike Kiely show a stead rise in the cost of cabinets from around £12,000 to £30,000 since BT began rolling out next generation broadband. Garfield’s “few hundred grand” marks a massive escalation in cabinet costs at a time when it is the effectively the only firm likely to win BDUK contracts.

Garfield said putting next generation broadband into rural areas “requires taking a look at an area like Wales, and (seeing what’s there) and saying there is nothing in the ground that is going to help us – there’s directly buried copper in most rural areas, that’s the reality, so there is nothing to benefit (us).”

She said BT had looked at this issue and made sure that it is not holding back consumer rural broadband provision.

She added that BT provides various options to communications provides, but dark fibre is not one of them. “I think people would like to use dark fibre not for consumable provision but to make it cheaper to provide business customers with different options. That’s not something (we) choose to do, if I’m honest, right now.”

Garfield equated different ideas about symmetrical and asymmetrical upload and download speeds to “religious beliefs”. BT had chosen to provide 80Mbps asymmetrical broadband to millions of people quickly using FTTC rather than 1Gbps symmetrical, which is likely to be a fibre to the home (FTTH) network.

She said she had seen stuff in BT’s labs that would make broadband speeds “dramatically higher” without resorting to fibre to the home. 1Gbps upstream is not what consumers need, she said. Nothing the labs had modelled so far required more than 24Mbps, she said.

One such technology is Genesis Technical Systems’ copper-based DSL rings, which at the show were running at 400Mbps. BT is expected to start trialling the technology towards the end of the year, with Genesis planning a commercial launch in mid-2013, probably with a European operator.

Garfield said Openreach would start work on the BDUK contracts it had already won “the day after” Brussels approves state aid under the BDUK procurement framework.

Ever since BT has been talking publicly about next generation broadband, it has quoted low figures for take-up. Whether it is right to do so, and to base its costing on low penetration, is highly debatable.

The Mike Kiely document, for which BT has not supplied a substantive rebuttal, suggests that BT is working on recovering its costs from a 20% penetration of the population.

In the towns, where it faces competition from Virgin Media, this may be warranted. Its latest financial reports suggest around 10% of homes passed take up a next generation service, but that BT Retail is winning its share of customers. Besides, it is early days; no doubt the £1bn it is spending on sports broadcast rights will help speed take-up.

However, this 20% assumption is likely to be completely wrong in rural and other not-spots, the areas that are eligible for BDUK money. The final report on Project Acccess, the £19m project to put first generation broadband into Cumbria, reports

99.84% of businesses and private citizens in Cumbria and parts of North Lancashire now have access to Broadband
At 30th April 2008, 16,612 businesses had a broadband connection, representing
71.1% of the total number of businesses

This suggests that BT is underestimating by far how many people would sign up to Infinity, and that BT is indeed overestimating how much taxpayers’ money it needs to earn a return from rural NGA deployments.

Mike Kiely, the author of a document that sought to describe BT’s proposed fees for rolling out fibre to the cabinet broadband in rural areas, was sacked by the department of culture media and sport following the publication of details of the paper on this blog, according to the person who gave me a copy.

Following the blogpost, a DCMS trawl of internal emails revealed that Kiely had sent his discussion document to people in local authorities that are preparing to buy next generation broadband (NGA) services under the BDUK procurement framework. His apparent intention was to give them the ability to question BT’s price proposals, which he believes are inflated. DCMS said it does not comment on matters that affect individual staff.

Reluctant whistleblower

Prices rise, but costs don’t in BT’s divide and conquer NGA strategy.

Kiely is a reluctant whistleblower. He declined to be interviewed for this story, or to explain his
description of BT’s proposed pricing model in detail. Nor is he the person who gave me his document.

There seems little doubt that he acted from principle. He is well-respected by those he dealt with as BDUK’s linkman between communities desperate for better quality broadband and BDUK. His contribution to helping remote communities in Cumbria prepare NGA plans is noted in evidence to the House of Lords’ communications committee investigation into UK broadband.

Kiely’s actions seem related to the increase, surprising in the light of the government’s overall debt, in the total amount of money available for NGA projects, and the lack of competition for it.

The government said initially it was putting in £530m for NGA in rural areas, plus potentially £300m in the next parliament. Robert Ling, the BDUK projects director who, in a unrelated move, quit and left a week before Kiely was sacked, was largely responsible for persuading local councils to match the central government contribution. This, plus extra money from the European Commission and Defra, plus £150m each for “Superconnected Cities” and mobile network infrastructure in rural areas has pushed the total up to around £1.5bn.

BT unprepared

This extra money appears to have caught BT unprepared. Kiely’s document shows that he suspects BT is inventing tasks and charges to soak up as much as possible of the extra money without having to do more than it first planned.

His analysis records that the average price of upgrading a street cabinet and running fibre to it in Phase 4 of Northern Ireland’s roll-out was just over £13,000. This corresponds closely to the price paid by the Kent village of Iwade for a single FTTC cabinet in what BT claimed was a commercially unviable location. Iwade’s final cabinet went live in March 2011, and Iwade parish council finance committee minutes dated 28 March 2012 report, “The long awaited invoice for £12,677 from Openreach B.T. for the installation of a broadband cabinet arrived and was paid in January, 2012.”

That amount is also in the ballpark of estimates provided by Cumbrian MP Rory Stewart to the HoL broadband investigation. Stewart said, “We can drop the amount of money that it is going to cost the taxpayer from hundreds of thousands down to £17,000.”

Meanwhile, an informal BT quotation in March this year estimated the cost of upgrading a remote PCP in the Leeds area at £10,000. This was later withdrawn by Openreach CEO Olivia Garfield who told the prospective customer to give her his phone number. BT would then assess potential speeds availabile via FTTC and FTTP. “I will again ask (one of her staff) to kindly provide you a ball park quote that you would need to raise (either locally or from the council) and a committed take up rate %. We have a number of communities across the country who have managed to make this work, and well done to them,” she wrote.

Prices rise, costs don’t

Up, up and awaaaay! BT piles on the charges, without explaining how they arise or when they are due.

Kiely’s document notes that since the main Northern Ireland roll-out, which finished in July last year, prices for rural cabinets appear to be rising, even though costs are declining.

Stewart went on to say, “Two years ago, my neighbour in Dufton was being quoted £45,000 to get a broadband connection in his home. The model of this parish pump approach has now reached the situation where any community in Cumbria that wanted to ought to be able to get it for a cost of £500 or £600 a home.

“For a relatively small sum of money—£60,000—hundreds of people around Great Asby will be able to get superfast broadband (via FTTC).” This is understood to be for two cabinets in Great Asby, a sum Kiely believes is inflated.

It is hard to establish true costs because BT does not disclose them, and requires interested parties to sign non-disclosure agreements, the HoL committee heard.

This means neighbouring councils are not able to exchange information that could help to harmonise and optimise roll-outs, lowering costs. Separating each procurement allows BT to mask such efficiencies to the outside while taking advantage of them operationally.

It allows BT to hide economies of scale, such as volume discounts, as well as any labour-saving techniques it learns or develops from the experience of rolling out the new cabinets.

There appear to be other costs that BT is trying to build into a “standard model” rather than rely on actual costs. Kiely’s description of BT’s model identifies “Planning costs”, “Availability charges” and “Take-up bonuses”. These can double the taxpayers’ liability for a project.

BT did not respond to a request to explain how these costs arose, what the rates are, or when they fall due. However, @BillBroadband, which is believed to be the Twitter identity of Bill Murphy, the man in charge of BT’s NGA project, said these charges are “standard approach”. He declined to provide further detail. A look at the Openreach website for high speed broadband prices was not illuminating.

Other sources close to NGA procurements question even BT’s basic costs. They say FTTC is an overlay on BT’s existing telephony network, therefore planning costs are negligible, as is the civil engineering needed to install and connect new cabinets because the ducts, the biggest cost of a new deployment, are already in place.

Kiely’s document suggests that BT is keen to develop an abstract model of charges that hide its actual costs and therefore profitability. By releasing it to NGA buyers he was giving them information they could use in negotiations with BT to ensure that taxpayers’ money was used to best effect.

Civic concern

While DCMS evidently regards Kiely’s actions as above and beyond the call of duty, they seem motivated by a spirit of civic concern. In that light, his sacking seems harsh. DCMS should have applauded rather than condemned him.

In any case, this episode may be only a footnote to the NGA story. The European Commission’s DG Competition may still decide that money dispensed under under the BDUK framework does not meet state aid guidelines. That decision is expected within days.

Cumbrian conundrum

Miles Mandelson, chairman of Great Asby Broadband Community Interest Company and vice-chairman of East Cumbria Community Broadband Forum, said in evidence to the House of Lords communications committee, “Three of us who were talking to BT and had proposals…found that BT—for reasons of commercial confidentiality—were not prepared to share with us every detail of the project cost so we did not actually know what the total costs of the project would be.”

This affected their ability to apply for funds from Defra’s Rural Community Broadband Fund because they had to show that the money required was less than 50% of the cost of the project, and that the area covered by the project fell outside the county’s proposed coverage area, i.e. in the “last 10%”.

In written evidence Mandelson said, “BT offered to provide further information under a non-disclosure agreement with Defra. The necessary NDAs were signed, and BT provided the information that it believed Defra required. Only after an initial assessment did Defra claim that it did not have all the financial information that it required, but it is believed that Defra still did not fully specify the required information, or ask BT for it. Instead, it required pilot projects to provide better ‘full costings’ information, which it still did not specify in any detail. Despite requests by pilot projects to achieve a resolution of this issue, neither Defra nor BT Openreach has sought a way to do so.”

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